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3 Cannabis Stocks to Buy for Superior Returns in 2021

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The structural issues, such as lower-than-expected demand, oversupply, thriving black market sales, and slow rollout of retail stores in some Canadian provinces, had plagued the cannabis industry.

However, the victory of Joe Biden in the United States presidential elections last month and the legalization of cannabis in five U.S. states have brought some relief to the sector, with the industry benchmark Horizons Marijuana Life Sciences Index ETF rising close to 40% since the beginning of November. Amid the renewed interest, here are the three cannabis stocks to buy for superior returns in 2021.

Canopy Growth

Since the beginning of last month, Canopy Growth’s (TSX:WEED)(NYSE:CGC) stock has increased by 36%, driven by its impressive second-quarter performance and strengthening of the cannabis sector. In its September-ending quarter, the company’s top-line grew by 77% year-over-year, driven by growth in Canadian recreational and medical segments. The growth in its vape, value, and cannabis-infused beverage segments helped the company expand its market share in Canada’s recreational market to 15.5%.

Meanwhile, the United States offers enormous growth potential, with New Frontier Data projecting the legal cannabis sales to rise at an annualized rate of 18% over the next five years. So, Canopy Growth is focused on expanding its operations in the United States. In July, it had launched an e-commerce website.

Meanwhile, its subsidiary, BioSteel Sports Nutrition, has partnered with Manhattan Beer and Reyes Beer Division to expand its footprint. Further, the company plans to launch THC-infused beverages in the summer of 2021 in association with Acreage Holdings.

Despite the improvement in Canopy Growth’s margins, its adjusted EBITDA remained negative during the second quarter. Meanwhile, the company is taking initiatives, such as closing down some production facilities and cutting down on its SG&A (selling, general, and administrative) expenses, to move toward profitability.

The company’s management expects to report positive EBITDA in fiscal 2022. Given its high-growth potential and improving margins, I am bullish on Canopy Growth.

Aphria

When many cannabis stocks are struggling to become profitable, Aphria (TSX:APHA)(NASDAQ:APHA) has reported positive EBITDA for the previous six quarters. Further, the company has been expanding its market share in some major Canadian markets through its value propositions and product differentiation. Meanwhile, last month, the company announced an agreement to acquire SweetWater Brewing Company, which would mark Aphria’s entry into the lucrative American cannabis market.

In August, Aphria had also inked an agreement with Canndoc, a medical cannabis producer in Israel, to supply dried bulk flower for two years with an option to extend it for two more years. The company’s Aphria One facility had received European Union Good Manufacturing Practices certification in January, which could drive its cannabis sales to Europe. So, given its high growth prospects, strong balance sheet, and attractive valuation, I expect Aphria to deliver superior returns in 2021.

Green Thumb Industries

Green Thumb Industries (CNSX:GTII) is one of the top-performing cannabis stocks this year, with its stock price rising 118% year-to-date. In its recently announced third quarter, its top-line grew 131.1% to $157.1 million, driven by the expansion of its distribution of branded products, the addition of 15 new stores, and traffic growth.

Its adjusted EBITDA increased by over 285%, driven by higher sales and expansion of gross margin. Green Thumb also reported net profits of $9.6 million while posting positive cash flows for the third quarter in a row.

During the third quarter, the company started producing and distributing its branded products from its manufacturing facility in Oglesby, Illinois, after completing the initial construction phase. It also expanded its footprint to two new markets, New Jersey and Ohio.

Meanwhile, it also focuses on developing innovative products to expand its portfolio. Given its growth potential, I expect the rally in Green Thumb’s stock price to continue into 2021.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Rajiv Nanjapla has no position in the companies mentioned.

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